Construction firms set to charge more

Construction companies have expressed an intention to increase their prices between 8 per cent and 10 per cent by the second quarter of this year consequent to the rise in prices of raw materials. Prices have risen between 10 per cent and 20 per cent since last year.

According to a survey conducted by The Nation, construction companies have had to carry the rising cost of construction. For example, the price of steel rods has risen from Bt28 per kilogram to Bt35 per kg, excluding the transportation cost. When combined with the transportation cost, steel rods cost Bt40 per kg. Cement prices have risen from Bt3,000 per ton to Bt3,250 per ton, while, the price of ready-mix concrete has risen from Bt1,600 per cubic metre to Bt1,700 per cubic metre.

Transportation cost has also shot up following the oil-price rise and now constitutes about 10 per cent of the construction cost.

However, construction companies cannot charge more because most construction contracts were signed in 2006. As a result, construction companies have been incurring losses.

Thailand's largest construction company Italian-Thai Development's managing director Premchai Karnasuta said the company has had to shoulder the higher construction cost of about 10 per cent for existing projects valued at Bt66 billion. As a result, the company will generate profits of only 7 per cent - below the expected 10 per cent - last year.

However, the company believes it will generate enough profits to achieve the target of about 10 per cent this year after it adjusts the construction price when it signs new contracts, for which bidding will start in the second quarter.

Meanwhile, the company has also made efforts to improve its construction process to reduce costs. This too will help the profit outlook and it expects to do better this year, he said.

"Project owners must know that they will face higher construction cost when new contracts are signed. Our new prices will be reasonable and will create a win-win situation for both parties," Premchai said.

Bouyges Thai's deputy managing director Suphot Sonsuwan said, the company had earlier tried to negotiate with project owners to adjust the construction price when raw-material prices rose. However, some project owners did not accept the new prices. Thus, the company had to complete construction under the existing contracts. However, the company will adjust its construction price for new contracts, especially for new high-rise buildings which is expected to rise between 8 per cent and 10 per cent.

The company has also put in efforts to improve the speed of its construction process and help project owners reduce their cost even though they have to pay a higher price as per the new contracts.

"We accepted losses last year because we  could not modify contracts. Now, we will adjust our prices by up to 10 per cent," Suphot said.

      At a glance

n Transportation cost has shot up due to the oil-price rise and now constitutes about 10 per cent of the construction cost.

n Companies cannot charge more because most contracts were signed in 2006. As a result, construction companies have steadily been incurring losses.

n Construction companies have had to carry the rising cost of construction costs.